Good morning! The indices continued to slide lower on Monday, but the intraday action was very choppy and the bears had a difficult time continuing the move. Instead, the market is beginning to round off some at the support on the 120 minute charts with lower lows, but more comparable highs. In essence, this meant that the market was showing the same inclination to slow its recent bleeding like it did on Friday. Nevertheless, the indices still showed losses by the end of the day. The S&P 500 slid 4.96 points, the Dow Jones Industrial Average fell 18.73 points, and the Nasdaq Composite lost 21.02 points. 

The morning kicked off with a downside gap into the open. It quickly broke higher out of a premarket trading channel, but was unable to penetrate the 5 minute 20 sma resistance and gap resistance zone which hit by the 9:45 ET reversal period. The selling that followed was stronger than average, leading to a bear flag on the 5 minute charts as the 5 minute 20 sma continued to hold moving into the 11:00 ET reversal period. A second intraday move on the downside intraday was the result and a third one followed just as quickly on a steeper bear flag into 11:30 ET.

Three comparable waves of selling on a trend move are typically followed by a greater correction to that trend. This increased the odds for a mid-day bounce on the 15 minute charts. It kicked off going into 12:00 ET and was strong enough to break the 5 minute 20 sma and trend channel resistance, but the 15 minute 20 sma held. The reaction to that resistance level was too rapid for a solid phoenix continuation pattern to form for more upside. Instead a small short pattern triggered, leading to a move back into earlier lows at the 13:00 ET reversal period.

It wasn't until the market flushed strongly into the 14:00 ET reversal period that the indices finally managed to break the 15 minute 20 sma resistance that had held it in all day. The market first rallied back into prior 5 minute highs. Then they corrected into the 5 minute 20 sma support, creating a 5 minute buy pattern into 15:00 ET. The change in pace on the upside versus downside moves was enough to propel the indices back into morning highs before the close. That resistance hit around 15:30 ET and held for the remainder of the day.

Even though the market showed a great deal of strength on Monday afternoon, many sectors still had a very rough day. This was particularly the case of the semiconductors, which lost 4.2% during the session. Others which showed significant pressure were the brokers, retailers, and home builders. Energy and oil services stocks also closed lower.

I think that we will continue to see the market react to these support levels this week. I still want to be on the look for intraday flushes on the downside, however, since most daily charts showed extreme downside over the last couple of weeks. As a result, they will typically have a more difficult time mounting a strong bounce off the support unless the pace on the 15 minute charts continues to turn over and round off on the larger intraday time frames.

The location of many stocks in their overall trends on the weekly and monthly charts are also such that they can easily continue correct in coming months, so I do not want to be very aggressive either way at this time. I am finding more for strong short setups on the monthly charts than buy setups, but most need a few weeks to a few months to correct to the selling that began this month before forming strong continuation patterns on the downside.

Economic Reports and Events
May 22: -
May 23: -
May 24: Durable Orders for April (8:30 am), New Home Sales for April (10:00 am), Crude Inventories 5/19 (10:30 am)
May 25: Chain Deflator-Prel. for Q1 (8:30 am), GDP-Prel. for Q1 (8:30 am), Initial Claims 5/20 (8:30 am), Existing Home Sales for April (10:00 am), Help-Wanted Index for April (10:00 am)
May 26: Personal Income and Personal Spending for April (8:30 am), Michigan Sentiment-Rev. for May (9:50 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stock's earnings date before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
May 22: CPB (?), FLO (?), LOW (?), TECD (?), PAY (?), WTSLA (A)
May 23: CSC (A), LNUX (A), MDT (A), PVH (A), TOL (?), ZL (A)
May 24: AZO (B), CWTR (A), DLTR (B), JLG (A), MIK (?), NTAP (A), PSS (B), SPI (?), TIVO (A), WSM (B)
May 25: BLI (?), CHS (A), CMOS (?), JOYG (B), PDCO (B), PDC (B), PLMD (B), SAFM (B)
May 26: CBRL (B)
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.